Take 5: Investing in Australia
Australia has a diverse investment landscape to offer, but there are risks that need to be taken into account. Here are five top tips on what to consider when thinking about an Aussie investment.
1. Assess the fundamentals. Australia is one of the few countries to have retained a triple-A rating throughout the global financial crisis. It also has higher interest rates than other developed markets and low unemployment. The fundamentals of a country are becoming more important to investors and Australia is undeniably strong.
2. Look at returns. The market is not flooded with Australia-focused funds, but the few that exist are performing well. As shown in the Money Management Australia funds feature, the average 10-year cumulative return on an initial investment of £1,000 is £3,791, with discrete performance of 20 or 30 per cent not unheard of. Be sure to check the volatility of funds, though, as there can be big troughs as well as peaks; Australia may not be for the cautious investor.
3. Analyse its links to China. Commodities are one of the major stories in Australia and so its market has become tied to China. Although this has been of benefit in China’s boom years, the future looks a little more uncertain. If you think China will have a hard landing, now may not be the time to invest in Australia.
4. Look at financials. Not all developed economies had a major banking crisis and Australia’s financials look strong. The country has a low deficit and the banks are not highly geared, so surprisingly several of the funds are overweight in this sector. There is some concern over the vulnerability of the Australian dollar but generally, with the major banking institutions in the country being very simple banks rather than traders and investors, things look good.
5. Consider other CASSH countries. Australia is lumped in with Canada, Switzerland, Singapore and Hong Kong under the ‘CASSH’ guise. While they may not seem a particularly cohesive grouping, investors say that the strengths and weaknesses of each make for a very diversified basket, with economies that complement each other well.
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